Least Developed Countries (LDCs) are low-income nations that face deep structural obstacles to sustainable development. These barriers relate to weak productive capacity, low human development, economic vulnerability, and limited resilience to external shocks. Nepal is one of the 44 countries currently categorized as LDCs by the United Nations. The UN identifies LDCs using three major indicators: the Human Assets Index (HAI), the Economic and Environmental Vulnerability Index (EVI), and Gross National Income (GNI) per capita. The HAI measures human development through nutrition levels, health conditions, school enrollment, and adult literacy. The EVI evaluates a country’s structural vulnerability by examining exposure to natural disasters, export instability, economic structure, and geographic remoteness. GNI per capita reflects the average income level of the population. Countries with low HAI, high EVI, and low GNI are classified as LDCs. For graduation, the UN requires a country to meet at least two of the three thresholds during two consecutive triennial reviews. There is also an “income-only” rule that allows graduation if a country’s GNI per capita is significantly higher than the threshold, even if the other indicators are not met.
Nepal met the graduation thresholds for HAI and EVI in both the 2015 and 2021 UN reviews. As a result, the UN Committee for Development Policy (CDP) recommended Nepal for graduation in 2021, with its official transition scheduled for November 2026. Nepal’s progress in human development, reduction in structural vulnerability, and improvements in social indicators created a strong foundation for graduation, even though the country did not initially meet the GNI threshold. By showing consistent development over multiple review cycles, Nepal demonstrated its readiness to move beyond the LDC category.
Graduation offers several important advantages for Nepal. First, it strengthens Nepal’s international image by signaling steady progress in development, governance, and economic performance. A more positive global reputation helps build trust among international partners and foreign investors. This confidence can attract increased foreign direct investment in sectors such as hydropower, tourism, agriculture, technology, and manufacturing. A stronger international image also enhances Nepal’s negotiating power in global platforms, allowing the country to participate more assertively in international decision-making, regional cooperation initiatives, and climate finance discussions. Graduation also opens the door for Nepal to access new development partnerships, including blended financing mechanisms, climate adaptation funds, and expanded South-South cooperation. Beyond external benefits, the graduation process encourages Nepal to adopt long-term policies, strengthen governance, and pursue economic diversification. The private sector may benefit from a more predictable business environment, improved infrastructure, and new opportunities for innovation. Tourism can also grow as international perceptions of Nepal shift toward a more stable and developed economy. Overall, LDC graduation supports improvements in human development and economic reform, helping Nepal prepare for a more competitive global role.
However, graduation also brings several challenges that require careful preparation. The most significant disadvantage is the eventual loss of special trade preferences that Nepal currently enjoys as an LDC, including duty-free and quota-free access to major international markets. This loss may reduce the competitiveness of Nepali exports such as garments, carpets, pashmina, and certain agricultural goods that rely heavily on preferential treatment. Nepal may also face reduced access to concessional loans and grants, which currently support large-scale development projects. After graduation, the country may need to rely more on market-based financing, which tends to be costlier and more sensitive to economic risks. Nepal’s structural weaknesses—including a limited industrial base, low productivity levels, and heavy dependence on remittances—could further complicate the transition. The private sector may find it difficult to compete globally without adequate policy support. Additionally, Nepal remains vulnerable to natural disasters, climate change, and internal political instability, all of which can threaten economic stability. Without strong planning, post-graduation Nepal may face economic pressures and reduced development momentum.
Recent Gen-Z protests in Nepal have further raised concerns about internal stability. These protests led to significant damage to government property, private businesses, hotels, and commercial centers. Such disruptions can weaken investor confidence, reduce tourism, and slow economic activity. This situation has led some people to question whether Nepal’s graduation should be delayed. However, LDC graduation is based on long-term statistical indicators, not short-term political events. Unless political instability results in prolonged economic deterioration, it is unlikely to affect the UN’s decision. Nepal has already met the required criteria in two consecutive reviews, and the UN evaluates multi-year trends rather than isolated incidents. That said, the protests highlight the need for stronger governance, youth engagement, economic justice, and employment opportunities. Ensuring stability and addressing dissatisfaction among young people will be critical for sustaining development after graduation.
Nepal’s progress toward graduation is supported by concrete data. In the 2024 UN review, Nepal’s per-capita GNI was around US$1,300, just below the threshold of US$1,306. Its HAI was recorded at 76.3, and its EVI at 29.7, both meeting graduation criteria. By 2025, Nepal’s estimated GNI per capita rose to US$1,404, and HAI increased to 77.58, showing further improvement in human development and economic resilience. To facilitate Nepal’s transition, the UN Development Programme (UNDP) has developed a Smooth Transition Strategy based on six priority areas, including macroeconomic stability, trade and investment promotion, economic diversification, climate resilience, and strengthening productive capacity. These strategies are essential to maintaining progress and managing risks after graduation.
As Nepal moves closer to officially graduating from the LDC category in 2026, a collective national effort becomes increasingly important. The government, private sector, investors, civil society, and the general public must work together to strengthen the domestic economy, attract foreign investment, expand tourism, promote local industries, and support agriculture and rural development. Stability, reform, and unity will be crucial for ensuring that Nepal not only graduates but also thrives in the post-LDC era. With coordinated action and strategic long-term planning, Nepal can successfully transition to a more resilient and prosperous future.
